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France's Total and China National Petroleum Corp (CNPC) are set to sign the first major agreement with Iran for the development of its gas fields since the loosening of sanctions, Iran's oil ministry said on Monday.

The agreement with the French oil giant could be a harbinger for the return of more Western companies to Iran's vast petroleum industry and represents a step forward for the Islamic Republic's goals of ramping up production of oil and gas over the next several years.

The deal, which will establish a consortium between Total, CNPC and Iranian Petropars to develop part of the giant South Pars gas field, is expected to be signed tomorrow with the National Iranian Oil Company, report Najmeh Bozorgmehr in Tehran and David Sheppard in London.

The move marks Total's return to Iran for the first time since 2010. European oil companies have been slow to return to Iran since the Persian Gulf country secured an end to sanctions on its energy industry by agreeing to curbs on its national nuclear program in January. American sanctions related to terrorism and weapons remain in effect on Iran.

Total, China National Petroleum Corp. and Iran's state-owned Petropars will develop part of a giant gas field in the Persian Gulf known as South Pars, a press official at Iran's oil ministry said. It wasn't clear how much of the $6 billion investment would come from Total, or how the deal would be structured for Total to steer clear of American sanctions still in effect.

The deal is a draft that still must be completed over the next six months, the official said, but it gives Total and CNPC a head start over competitors.

Representatives for CNPC and Petropars didn't immediately respond to requests for comment. Total said representatives weren't available to comment on Monday.

The agreement marks the first time a Western oil company has been contracted under the new terms for foreign firms working in Iran. The terms still haven't been publicly released, but Iranian oil officials have said they foresee allowing oil companies to make more money and work for longer than previous deals that were seen as onerous and loss-making.

Total was long one of the most active Western oil companies in Iran, and its executives have said they were eager to return to a country with the fourth-largest reserves of oil in the world. Total kept an office open in Iran throughout sanctions and was the first European oil company to buy Iranian oil and ship it to Europe after the restrictions were lifted.

But actually setting up shop in Iran and drilling has been a riskier proposition. Total Chief Executive Patrick Pouyanne has said he was in no rush to return to Iran until the terms of working there were better understood.

Total and CNPC both signed deals years ago to develop the South Pars project before sanctions forced them to pull out. The South Pars field, which is shared by Iran and Qatar in the Gulf, contains 14,000 billion cubic meters of gas-8% of the world's known reserves.

Total and CNPC have been leaders among oil companies in finding ways to do business in countries under U.S. sanctions. Both companies were key players in developing a $27 billion natural-gas field in Russia with a company, OAO Novatak, hit by sanctions, a deal largely financed by Chinese banks.

Iran has the world's second-largest gas reserves, and fourth-largest oil reserves, according to the US Energy Information Administration, and the country wants $200bn of investment in its energy industry over the next five years in order to raise production.

Posted in: Oil and Gas

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